Reverse Mortgage Specialist
Reverse Mortgage Specialist
A reverse mortgage specialist will help you determine whether a reverse mortgage is best for you, which type of loan is best and will help you obtain a loan. Also when you obtain a government-backed reverse mortgage there is a requirement to meet with a HUD counselor to make sure you understand why you are doing the mortgage. A person cannot rely entirely on the counselor to determine whether the mortgage is best or not. A major responsibility for dispensing advice lies with the reverse mortgage specialist.
Many state laws do not allow the specialist to have a conflict of interest such as doing the reverse mortgage in order to put money into an investment. In other words the specialist is not allowed to sell investments or insurance products using the mortgage proceeds. However, this does not dissuade many specialists from teaming up with a financial salesperson and to have an arrangement to refer clients to this person. Some insurance agents have been known to own a reverse mortgage company and they require their loan originators to send clients to these owners in order to invest the money in insurance products such as annuities.
There may be situations where using proceeds solely for the purpose of investing could be a good idea. But in many cases it may only be a good idea for the financial salesperson to create a commission and it may end up being an expensive proposition for the homeowner. For instance suppose a homeowner can get $70,000 out of his or her equity on a reverse mortgage. It might cost $8,000 in origination fees to obtain this money. Then a recommendation is made to invest the money in a deferred annuity which the homeowner does. Suppose that a year later, the homeowner decides to sell the house and move into an assisted living facility. In order to sell the house, the reverse mortgage must be paid off. Suppose also that the value of the home has declined over the previous year and there is little excess equity left to cover part of the payoff. In addition the homeowner is forced to cover some of the closing costs in the sale. In this case, assume the entire $70,000 will have to be taken out of the deferred annuity to cover the cost of selling the home. But there is a 10% early withdrawal charge on the annuity surrender. The total cost of doing the reverse mortgage and buying an annuity is $15,000. In the end the homeowner has taken a loss of $15,000 -- about a quarter of the value -- on the $70,000 in equity that would have been available in the sale of the home had no reverse mortgage ever been done in the first place.
As a general rule it is not a good idea to do a reverse mortgage solely for the purpose of reinvesting the money in something else. Reverse mortgages were designed to help people pay costs or provide extra income to allow older Americans to remain in their homes. Or sometimes older people want extra cash to buy things they currently can't afford. Such things as remodeling, finding money for a down payment for a second property, buying a new RV, financing travel, buying a new car, buying long-term care insurance and so on.
When doing a reverse mortgage make sure all costs are disclosed and the alternatives are discussed as well. When choosing a reverse mortgage specialist ask for a signed statement from that person that he or she has no relationship with insurance annuity or investment companies either directly or through an associate and that he or she will make no recommendations for selling an investment vehicle. If you want to use the money and put it in an investment, that should be your choice alone, and someone wanting to make a commission off of you should not induce you to do the mortgage for that purpose.
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